We explain what a funding round is, the mechanism that most startups use to obtain capital when traditional banking does not fit their growth model. Behind this term is a process with well-defined steps, carefully negotiated timelines, and actors with different interests. Understanding it is the first step towards negotiating with investors, knowing what is being signed and what is being given up.
Simply put, a funding round can be summarised as follows: an operation in which investors provide money to a company to increase its share capital, in exchange for taking on the new shares that the company issues. The conditions of each round depend on who participates, the needs of the company, and the method by which contact is made with investors, which can be direct or through crowdfunding platforms. Nevertheless, the process usually follows a fairly stable sequence.
The path from negotiation to registration
It all starts with conversations between the company and potential investors. When both parties make progress, the first document signed is the term sheet, a letter of intent that summarises the basic conditions of the final agreement. It includes the identity of the investors, who the current partners are, and whether an investment agreement and a partnership agreement will be signed afterwards. It is not a closed contract, but it sets the playing field and, in practice, carries significant weight in what follows.
Once the term sheet is signed, the round enters its most technical phase. The investment agreement establishes the economic terms, including the total investment and the valuation of the company. This valuation determines the issue premium that new partners pay for their shares, added to their nominal value. Meanwhile, the partnership agreement regulates the coexistence between those who were already involved and those who are coming in: obligations of permanence, exclusivity, non-competition, structure of the management body, transfer regime of the shares, and rights to information and economics.
Simultaneously or shortly thereafter, the company holds a General Meeting of Partners to approve the capital increase. This agreement specifies how much the capital increases, how many shares are created, what the premium is, the total disbursement, and who assumes each share and in what proportion. The increase can be made with monetary contributions, meaning a transfer to the company's account; with non-monetary contributions, such as goods or valuable rights; or by offsetting credits that the investor has against the company.
The final step is to formalise the agreements in a public deed and present them to the Commercial Registry, so that the capital increase has public registration. In rounds with foreign investors, this phase can become complicated. Each investor needs a foreign identification number or a Spanish tax identification number, and obtaining it from abroad usually requires slow procedures or the sending of documents with apostilles by ordinary mail. It is advisable to keep this in mind from the outset to avoid prolonging the closing timelines.
The usual phases: from Pre-Seed to Series B
Not all rounds are the same. The size of the cheque and the type of investor change according to the maturity of the company, and the ecosystem has named each stage with its own name. The first is Pre-Seed, where the money usually comes from the founders themselves, family, friends, or small business angels. The goal is to transform an idea into something tangible: a first prototype, a minimum viable product, a formed founding team, and the first tests with customers. At this stage, investors primarily look at the team, as there are hardly any financial results to analyse.
The Seed round comes when the startup demonstrates that there is a market for what it sells. It serves to improve the product, hire talent, increase sales, validate the revenue model, and accelerate customer acquisition. It is one of the most decisive stages, as it turns a promising project into a company ready to grow. At this point, specialised early-stage funds, such as Plus Partners, appear, along with numerous business angels and dedicated investment vehicles.
When the model is validated, the company usually enters Series A. This is the transition from startup to growth company. Funds begin to demand much stricter metrics, such as monthly growth, recurring revenue, customer acquisition cost, customer value, churn rate, and gross margin. The money is used to expand, grow the team, invest in technology, strengthen the sales area, and develop new products. It is no longer enough to have a good idea: there must be real capacity to scale.
Series B typically arrives when the business is established and the company operates in several markets. Investments are aimed at international expansion, acquisitions, automation, new lines of business, and brand reinforcement. At this stage, larger funds participate, capable of investing several million euros per operation. Series C, Series D, and subsequent rounds are reserved for well-established companies, whose goal is no longer to validate the business but to lead markets, and which often prepare for an IPO or a strategic acquisition.
These stages are the most common, but they are not a written rule. There are startups that combine several sources at once: venture capital, business angels, public funding such as that offered by ENISA, bank financing, venture debt, grants, or corporate venture capital. The choice depends on the sector, the company's strategy, and the moment it finds itself in.
What investors look at before entering
Each fund has its own investment thesis, but there are criteria that frequently recur. They look for a sufficiently large market, a solid and complementary team, execution capability, a defensible competitive advantage, scaling potential, and demonstrable traction. Additionally, the international vision tends to weigh more and more, even in companies that have not yet left their country.
The weight of each criterion changes over time. In the early stages, the potential of the team dominates, as there are no figures to consider. As the company grows, financial metrics and the ability to generate sustainable profits gain ground. This is why an entrepreneur who arrives at Series A with a pitch designed for Pre-Seed often struggles to close the round.
Much more than money
Securing funding is not just about receiving resources. The entry of a fund or a business angel often brings business experience, strategic contacts, access to customers, support in internationalisation, and assistance in preparing for future rounds. For this reason, many executives argue that choosing the right investor can be as important as the amount they contribute.
It should also be noted that a round also means giving up equity in the company and accepting rights and obligations outlined in the partnership agreement. A high percentage given up in an early phase can limit the founders' decisions in later rounds. Carefully reviewing the term sheet, with legal and financial advice, helps avoid such surprises.
In the southern European ecosystem, funding remains one of the major challenges for startups and scaleups. Forums like Al Andalus Innovation Venture bring together funds, business angels, corporations, and institutions each year to analyse how venture capital is evolving and where the next investment trends are headed. For an SME or a startup just starting out, understanding how these rounds work is the first step towards sustainable growth and competing outside their home market.
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